Key insights
- The article highlights Linde, a key supplier for SpaceX, as a potentially undervalued investment compared to SpaceX's high valuation. Linde's role in fueling a significant portion of SpaceX launches and its historical ties to NASA suggest continued demand. Analysts view Linde stock as a 'buy,' indicating potential upside for investors interested in the space industry, despite broader concerns about SpaceX's valuation.
With a full name of Space Exploration Technologies (SPCX 6.24%), the "X" in SpaceX is short for "exploration." However, it could stand for "extra-high valuation." SpaceX's IPO market cap of roughly $1.8 trillion was the biggest ever. Only days after its public listing, SpaceX ranks among the largest companies in the world based on market cap.
This IPO stock now trades well above the price targets even the most bullish Wall Street analysts set. It's understandable if many investors are nervous about SpaceX's astronomical valuation.
There's good news if you want to profit from the space boom, though. The company that fuels SpaceX's rockets is trading at a discount to peers -- and Wall Street overwhelmingly views its stock as a "buy."
Rockets existed only in science fiction novels when Linde (LIN +0.12%) was founded in 1879. The German company soon became a leader in manufacturing and marketing industrial gases. In 2018, it merged with U.S.-based industrial gas company Praxair, cementing its position as the world's largest industrial gas supplier.
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From the early days of NASA's Apollo space program in the 1960s, Linde was a primary provider of liquid oxygen for the Apollo rockets. The company continues to supply liquid oxygen and liquid hydrogen for NASA today, including for the Artemis missions focused on returning humans to the moon.
Linde is also a major partner with SpaceX. It fuels roughly 70% of SpaceX's launches, according to Barron's. SpaceX's reusable Starship vehicle could make it even more dependent on Linde. Starship burns around 10 times the oxygen of a Falcon 9 rocket, based on an analysis by Rothschild & Co. Redburn analyst Tony Jones.
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As an exclamation point for the opportunity Linde sees with SpaceX, the company built a new air separation unit (ASU) in Brownsville, Texas. Not so coincidentally, this facility is near SpaceX's Starbase rocket launch site. The new ASU produces liquid oxygen, nitrogen, and argon for SpaceX.
Of the 27 analysts surveyed by S&P Global (SPGI 1.70%) in June who cover Linde, 22 rated the industrial stock as a "buy" or "strong buy." Four analysts recommended holding the stock, while one outlier labeled Linde as an "underperform."
Granted, Wall Street doesn't expect huge returns from Linde over the next 12 months after its 20% year-to-date gain. The consensus price target reflects a modest upside of around 6%. But this average target could rise as more analysts update their projections. As a case in point, RBC Capital (RY +0.48%) recently raised its price target from $552 to $570 -- a double-digit percentage increase from Linde's current share price.
Why are analysts generally bullish about Linde? For one thing, management expects to grow earnings per share by 10% per year on average. The company also boasts a strong project backlog of $10 billion as of the end of 2025.
Linde remains attractively valued compared to peers. Its shares trade at a discount to several other S&P 500 (^GSPC +0.97%) materials sector stocks. As icing on the cake, Linde offers a reliable dividend that yields 1.2%. The company is a member of the Dividend Champions, a group of stocks that have increased their dividends for at least 25 consecutive years.
During the heady gold rush days of the mid-1800s, the suppliers to gold miners often made greater profits than the miners themselves. Could Linde be a modern-day equivalent? Maybe.
To be sure, Linde doesn't have the explosive growth prospects of SpaceX. However, it could ultimately be a bigger winner for investors based on the current share prices of the two stocks. Unlike SpaceX, Linde isn't a moonshot bet. It's a company that makes moonshots possible, but with a valuation more down-to-earth than SpaceX's.